UK house prices grew at the slowest pace in 18 months in July, a new survey has showed, suggesting that ‘bigger forces’ are at work in the property market other than the usual summer slowdown.

Property analyst Hometrack said national property prices increased by 0.1 per cent this month, down from 0.3 per cent in June and 0.5 per cent in May. This is the lowest level of monthly growth seen since February 2013.

And in the capital, which has been recording the sharpest slowdown in price rises over the past months, property prices stalled in July, recording the lowest monthly change for 19 months.

UK house prices: Hometrack said July's slowdown in property price growth could be here to stay and not just down to the usual summer lull

Richard Donnell, director of research at Hometrack, said warnings from the Bank of England and economists of a possible house price bubble as well as tougher new mortgage checks and fears of an early rate rise had dampened the market.

He said: ‘Seasonal factors always lead to a slowdown in demand and market activity in the summer months, but it is clear that there are bigger forces at work with a pronounced loss of momentum in the London housing market in the last three months.

‘The lead indicators in the survey have pointed to a slowdown in the rate of growth for the last two months, in part due to warnings from the Bank of England and others of a possible house price bubble.’

The housing survey has also showed that the gap between supply and demand of properties has narrowed further in July, with the proportion of new buyers registering with agents falling by 0.9 per cent in July.

Hometrack said this was pointing to a reduction in the upward pressure on house prices, with agents increasingly struggling to achieve the asking price of properties, especially in the capital, which recorded the sharpest fall.

Across the UK 96.1 per cent of buyers achieved the price they asked for in July, down from 96.8 in May. But in London, this fell from 99 per cent to 97.5 per cent during the same period.

Just 12 per cent of London postcodes registered a price rise in July, against 11 per cent of postcodes where prices actually fell.
This is the first time in four years that London, which has long been the engine of the housing market, has a smaller proportion of markets registering price gains than in the regions, Hometrack said.

The trend was echoed across the UK too, where less than a quarter (24 per cent) of postcode districts registered a price rise in July - almost half the level seen in the spring, when 50 per cent of postcodes saw price rises.

Donnell said demand for mortgages had also been slowing for several months after the introduction of the Mortgage Market Review in April, which requires lenders to probe applicants' finances more closely, including to see if they could withstand higher interest rates in the future.

He said ’There’s a growing element of caution from buyers about the market outlook as the prospect of future interest rate rises looms, and the new tougher mortgage market checks implemented as part of the Mortgage Market Review impact on demand.’

Speculation on whether the Bank of England is going to raise interest rates this year rather than next year has intensified in the recent months as the economy has continued to recover and is now set to to return to pre-recession levels and emerge from the longest downturn in UK history.

Donnell said: 'The housing market has tended to move in "mini cycles" over the last
few years, each spanning 18-24 months, largely on the back of changing
buyer sentiment.

'Overall, market conditions have been strong since early
2013, as a result of pent-up demand returning to the market outside
London and with buyers encouraged by low mortgage rates and the launch
of Help to Buy, but it now appears that market sentiment is starting to
change.'

Nevertheless, Hometrack said there was no evidence of any price falls in the near future.

Donnell said: ‘House price growth across the rest of the country, where price rises have been far less pronounced in recent years, could well be sustained into the autumn.

‘While seasonal factors have impacted the level of price growth in the regions outside London, there is a slowing in the rate of growth but no evidence of any price falls.’